Fate of TPG Real Estate Finance and other mREIT's?
Been reading a lot of press about TPG Real Estate Finance and the problems they are facing with liquidity. What do you guys think about the long term viability of platforms like TPG REF? In their earnings call they said liquidity constraints raise substantial doubt about its ability to continue “as a going concern." However have not heard of similar problems with say Blackstone/Apollo/KKR's mREIT's. Are they struggling as well and will they possibly go under or make no where close to their prior origination volumes?
Maybe Blackstone isn't as leveraged? Thoughts anyone. I am sure the info can be found on their 10Q's
The highly leveraged will run into trouble, the others will weather the storm but probably take a relatively permanent write-down. Beware of funds promising high-yield in low-yield environments.
One term - securities/cusips repo....Its such a sad situation because TRTX isn't in trouble due to its main business (making loans), its because of cash management (using cash on hand to buy cusips at super tight pricing versus paying down their repo lines or something else). When cusip pricing fell, they got caught off guard by margin calls and well the rest is history.
Notice how BXMT and KREF specifically mentioned in their earning calls that they had 'non-MTM' facilities and dont buy cusips for their mREITs (or have them unlevered).
The credit pain is yet to come, and im somewhat excited to see what happens.
Exactly - those using non MTM warehouse lines or financing existing lending positions via CRE CLO aren’t having those types of issues currently.
Yep. The only thing id say/clarify is that TRTX's MAIN issue was due to securities (cusips/bonds) and not loans (at least right). For technical clarification - whole loans are not securities since they are not cusiped. Its difficult to margin call on a CRE loan for "market marks" since they arent traded as often other than at primary issuance (meaning there isnt a liquid market for them such as the resi loan market).
This is 100% correct. While certainly most mreits will have some troubled assets/loans, they’re getting hammered due to margin calls (also market over reaction imo - at least stock wise). They’re borrowering against their loans or securities portfolio. PE firms/debt funds do similar work but via subscription facilities (collateralized by unfunded committees to the fund vs. loans/MBS/securities/etc.)
Mreits, in addition to writing/holding loan (some also equity invest and write CMBS), hold massive portfolios of MBS/CLO, etc… or even corporate debt, etc... a large part of their book is essentially a bond fund. These companies use leverage to pump returns on these securities via short term repo (repurchase agreement) or other credit facilities that are backed by these securities. Borrower at low rates and lend at higher rates… the spread is the $$. How else do you pump a ~7% loan rate into the double digits or a low MBS yield into the higher single digits? Obviously all these guys use leverage, but its the MBS book and related repo agreements that have fucked up some mreits.
As for TPG, they’re just the one that got caught with their pants down… at least thus far. They also just sold $1b debt securities to hit a debt repayment… and announced they cannot hit the next one w/o making more moves. I don't think I've heard any other market updates even close to TPG... most seem to be OK for now.
Given today’s enviro, MBS value has dropped resulting in margin calls from the repo lenders (banks). So these mreits need cash on hand… this is why all of them have stressed cash and their unencumbered assets on calls/mkt updates.. or started increasing their non MTM financings.
As for fate, I'd say sure some will be fucked, but most will be fine. Just weathering the storm… sit tight/hold cash. DCM are dry anyway.
Semi-related, interesting potential next phase ties to CLO (many foreseeing this is the current version of the 2008-MBS/CDO/CDS fuck up waiting to happen). CLOs can arguably be filled with shit (circle back to big short, Great Recession, same story, etc). Rating agencies already downgrading 20% of loan in CLO last month (this is not just RE loans but corporate, auto, etc) and added more on watch list. Assuming we’re just entering the BK phase here, many more CLOs can blow out/drop to junk rated.. and the massive ~ $1T+ CLO market crashes/becomes illiquid. Potential shit storm.
Id also add that the Fed/TALF is partly leaving mreit/CRE industry hanging. Without getting into feelings on bailouts... Fed was originally only accepting GSE paper.. and I think more recently buying AAA CMBS and maybe AAA CRE CLO.. not positive. I may be wrong... but kinda of shocking to not accept other non-GSE MBS.. just given the massive collapse of CRE industry.. oddly seemed overlooked.
Read through the Exantas financials - they took a $180mm loss as a result of their CMBS cusip portfolio
One big takeaway from the last financial crises is that mortgage REITs are like cockroaches, they never die. RAIT last over a decade longer than it should have and still spun out IRT. ISTAR is still alive and kicking, as is Resource Capital, now Extanas.
Sounds like TPG has a handful of financing options. Wonder how much permanent damage was already done by the forced asset sales... https://www.nreionline.com/lending/starwood-advanced-financing-discussi…
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